from Silver Doctors:

“…the re-introduction of the gold standard would initiate a change in the financial system whereby purveyors of…”

by Michael Ballanger via Streetwise Reports

Unarguably, the finest piece of work that I have ever seen on the state of the global financial world—ever—is the one recently created and presented by Grant Williams of RealVisionTV entitled “Cry Wolf.” I was watching it last evening for the fifth time with my better half (who was watching it for the first time) and despite the fact that as bright and insightful as she is, I could and would not expect her to grasp concepts such as “Exter’s Inverse Pyramid” or the definition of a “trophic cascade” but when I glanced over to gauge her reaction to what might have been fairly glutinous material, to my delight she was glued to the screen as the history of her favorite form of metal unfolded in Grant’s purely brilliant display of 5,000 years of human folly, greed, and insanity.

The coup de grâce was the ending of the piece where Grant draws a phenomenal analogy between the role of the Grey Wolf in controlling the uncontested overpopulation by the deer and elk of Yellowstone National Park and the role of gold in controlling the uncontested overpopulation by the “money-changers” in global economics. The term “apex predator” is wonderfully applied to gold and the Grey Wolf in that there is no natural predator to keep wolves in check just there are no counterparties to the role and control of gold.

When you look at Exter’s Inverse Pyramid, you are looking at a ranking of all assets from the top to the bottom of the risk slope so it is of interest that in the upper half of risk we find none other than real estate, where the city of Vancouver recently reported a 40% drop in residential home sales for December on the heels of a 42.5% drop in November. Prices are down 8–10% in Vancouver and Toronto as the marginal (foreign) has finally been legislated away as depositories for expatriated Chinese capital. Even New York City has seen a 14% decline in sales with an accompanying 4% drop in prices so the world of asset inflation in the saddle of unbridled money-printing and credit creation has come to a resounding and screeching halt—or has it? After Friday’s Federal Reserve Lovefest with Janet Yellen and Jerome Powell all sending out dovish signals, perhaps the December rout has altered policy.

Back to the title of this missive, “Cry Wolf” offers the proposition that a return to the gold standard would create a “trophic cascade” of sorts in the financial world. That is to say, an ecological event in which there exists an “apex predator” at the top of the food chain whose re-introduction (as in the case of the Grey Wolf to Yellowstone) to an ecological system triggers a massive metamorphosis of that system. Just as Grant’s video depicts changes occurring after the return of the wolves, which include even the rivers, the re-introduction of the gold standard would initiate a change in the financial system whereby purveyors of credit and paper promises would be penalized, and savers and disciples of sound money and fiscal sanity rewarded.

As a true adherent to the rights of all citizens to have their hard-earned savings protected from the ravages of currency debasement, I would welcome any initiative that would wrest the printing presses away from the bankers and the politicians. To wit, this is exactly the message in Grant William’s brilliant presentation and it behooves us all to watch over and over and over again until it sinks deep within our cranial vaults and forever alters our ingrained and flawed attitudes about investing, labor and money.

Stock prices closed out the week with a solid gain, which come as no surprise to those who are privy to my Twitter feeds. The time to be short expired once the RSI for the S&P dipped under 25 and the time to go long (for a “trade”) was on Christmas Eve when it plunged in a panic liquidation under 20. Notwithstanding that I elected to pass on the long side despite the obvious massive oversold condition that arrived late during the worst December in a decade (at one point the worst December since 1931), I went into Christmas with all (non-precious metals) shorts covered and all puts sold. Only the Santa Claus rally period, defined as the last five days of December and the first two of January, was able to save the month quarter and year for many stock bulls as it eked out a 1.3% gain for the period. Statistically, it infers that there is a distinct possibility that the Christmas Eve lows at 2,351 for the S&P were THE lows but we still need to see what happens after the Monday/Tuesday closes which, if positive, would further enhance the likelihood of a prolonged recovery rally. Without the benefit of a crystal ball, my gut tells me that we are going into a sideways-trending period for stocks as opposed to the “New Highs” halcyon of the past ten years or “New Lows” below the December 24 nadir.

From the trader’s perspective, if the Q4/2018 bloodbath did just one thing of importance and one thing alone, it was to alleviate the terror one has been experiencing when even contemplating short selling since the face-ripping fandango of the past few years. “Don’t fight the tape and don’t fight the Fed!” screamed the late legendary market maven Marty Zweig and no truer words were ever spoken when you look back to 2009 and especially 2018. The last year was a year in which the Fed was openly hostile to stocks by way of quantitative tightening leading to balance sheet reduction and high short-term lending rates, and it finally registered in early October with the rest being history. In retrospect, it is hilarious how the CNBC cheerleaders totally ignored the words of Master Zweig and instead used the phrase “strong economy” no fewer than 652,947 times in the final quarter of the year as a rationale for buying stocks. Forgotten totally was “the horrid economy” of March 2009 when the Fed embarked on its credit-fueled bailout and intervention campaign when that too was an excuse for “buying the dips,” proving once again that CNBC is best watched with the “MUTE” button on and only for live data feeds while away from one’s workspace. (I overlay a transparent dart board on my TV for maximum adolescent amusement.)

As a trader, I was terrified in early November when I looked at the Goldman Sachs (GS:US) chart in the days after the Indonesian scandal broke because I did NOT see opportunity; I only saw another potential loss from trying to short a big name U.S. bank. What gave me courage was the knowledge that since the Fed was no longer in “protector mode” and social media starting to viralize the GS story, it appeared as though “conditions” had changed, and when conditions change, I change. I bought the GS December $200 put at $3.40 and sold them at $25, which was actually about $15 too early as GS hit $160 by expiry. Nonetheless, I was a nervous wreck throughout.

The point is that with the severe Q4/2018 breakdown in the long-term charts of the global stock markets including the S&P 500, I am no longer engulfed in abject terror at the thought of shorting one of the FANGS or the index ETFs because despite a blow-out unemployment number last Friday and stock-soothing words from Mr. Powell, this current rally is simply a bear market rally and again as stated last week, this Papa bear is simply sleeping off the engorgement binge upon which he embarked last October resulting in him passing out from excessive gluttony on the Eve of the Noel at S&P 2,351. This bear is simply “napping”; he is NOT back into “hibernation.”

That said, I am now of the opinion that the elitists are going to attempt to restore market confidence due to their (rightly founded) fear that recent global market turmoil will see the embodiment of the negative asymmetrical wealth effect of declining assets prices. Stocks, housing and commodities are now trending downward and while stocks alone are enough to sour consumer spending patterns, housing has an infinitely greater impact, as we saw in 2006 when the sub-prime bubble triggered the beginning of that catastrophic foreclosure/liquidation cycle. As the Q4 earnings reports start to arrive, we may see accelerated interventions and abbreviated declines as they try to “soft-land” the stock markets. The first five days of January can give you an inkling as to the month of January just as the Santa Claus rally might be giving us a similar bullish hint.

The time to be short has passed us by and while it might be too early to go long the S&P, I await an RSI north of 70 (currently 46.77) for the S&P 500 before I look to establish any shorts and I would avoid any new longs until I see a successful retest of the December lows OR an RSI back under 25. As for the VIX, it has already crashed from 36 to 21 and if there is ANY ONE indicator that smells of intervention, it is the VIX.

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